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Newsletter Publisher Settles SEC Charges

Regulation: Three were accused of running up the stock price of an O.C. medical products start-up.

June 23, 2000|From Bloomberg News

Three men, including newsletter publisher Yale Hirsch, settled Securities and Exchange Commission charges that they schemed to artificially run up the stock price of an Orange County medical products start-up firm in the early 1990s.

Without admitting or denying the allegations, Hirsch agreed to return $127,007 in profits for his alleged role in pushing stock of Davstar Industries Ltd., which he once called his "Stock of the 90s," the SEC said Thursday.

Allan G. Kern, a former consultant to and employee of Davstar, now called Imagyn Medical Technologies Inc. in Irvine, agreed to pay $63,036, the SEC said. Malcolm McGuire III, a registered representative, was excused from paying a $19,885 penalty due to his inability to pay, the SEC said. They neither admitted nor denied the SEC's charges.

The SEC alleged that the three schemed to inflate the price of Davstar stock from roughly $1 in May 1991 to a high of $13.75 per share in November 1992 in exchange for company stock or warrants.

In December 1995, Davstar settled SEC charges that it issued false press releases and paid an unnamed newsletter publisher to run favorable articles on the company's prospects. Later, the publisher was revealed to be Hirsch.

Jerry Silver, Davstar's former chairman and chief executive, also agreed to settle SEC charges without admitting or denying wrongdoing.

Davstar, which changed its name to Urohealth Systems Inc. and then to Imagyn Medical Technologies, manufactures medical devices. The company filed for Chapter 11 bankruptcy protection in May 1999 and emerged from bankruptcy in October 1999. The stock was delisted Nov. 1, 1999.

The SEC charged that Hirsch, of Old Tappan, N.J., issued positive articles on Davstar in the newsletters "Ground Floor" and "Smart Money" in 1991 and 1992. In return, Davstar in October 1991 awarded Hirsch warrants to purchase 31,000 common shares at 87 cents each, the SEC contended in its complaint, filed in a New Jersey federal court. These securities eventually brought Hirsch profits of over $100,000, the agency said.

Under federal securities law, newsletter publishers are allowed to receive payment in return for touting their sponsors--as long as the arrangement is revealed to readers. Hirsch included disclosures in only the first of many articles that he wrote on Davstar, the SEC charged.

Hirsch's lawyer, Eric Breslin, said his client is "extremely relieved" to have the 7-year-old case behind him. "It's been a painful and difficult episode," Breslin said.

Kern's lawyer was unavailable for comment. McGuire, who lives in Scottsdale, Ariz., has an unlisted telephone number and is not represented by a lawyer.

Final court judgments were issued against Kern on March 19, 1999, and against Hirsch on Feb. 17. The SEC did not announce the judgments until Thursday,, along with the case against McGuire, the registered representative. McGuire, who was the subject of administrative proceedings, was barred from the brokerage business for six months.

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